Markets Live: ASX lifts for the week

That's it for Markets Live today and for the week.

As ever, thanks for reading and your comments.       

Have a great and relaxing/exciting weekend (take your pick) and see you all again Monday morning from 9.

Shares end the week higher despite a nasty synchronised sell-off in banks and miners pushing the index sharply lower on Friday.

There was little warning ahead of this morning's steep decline in the top 200 index, which failed to make up much ground through the rest of the session. The benchmark ended the day down 38 points, or 0.7 per cent, at 5752, but still managed to add 24 points or 0.4 per cent over the five sessions.

Most of the major sectors ended the week higher, with energy's 2.1 per cent gain the standout despite oil prices coming off close to 5 per cent. Bond-sensitive sectors such as utilities and real estate also did well, adding 1.9 per cent.

Among the biggest market boosters over the five sessions were Transurban, which climbed 3.1 per cent, Aristocrat Leisure, which jumped 5.3 per cent as it revealed bumper earnings, and Origin Energy, up 4.6 per cent.

Consumer staples, which includes the likes of Woolies and Wesfarmers, was off a touch, but financials were the primary drag, as the big four banks all dropped. CBA has lost ground in each of the past four weeks. BHP lost 1.2 per cent and Fortescue a hefty 7.4 per cent. Considering all that, it was an impressive effort for the ASX to move up as a whole.

It was another tough week for listed retailers as another broker issued a gloomy outlook for the sector. Over the five days the likes of Harvey Norman, JB Hi-Fi, Myer and Super Retail all lost ground, the last two by more than 10 per cent. The pessimism extended to car sellers, with Automotive Holdings plunging 15 per cent on an earnings downgrade.

The recent cavalcade of reports on banks hiking mortgage rates has one of your Eds thinking: if borrowers are getting squeezed, are long-suffering savers finally getting some relief?

Looking back over the past six months, the evidence suggests not. The average variable home loan rate over that period has moved a touch higher to 4.56 per cent from 4.43 per cent, on research house RateCity numbers. Yet deposit rates have gone the other way. One-year term deposits on average offer 2.3 per cent against 2.35 per cent in November. Average "bonus saver" rates have moved to 1.59 per cent from 1.62 per cent.

Put those numbers after inflation, and with the headline consumer price inflation running at 2.1 per cent, cash serves up some very meagre returns indeed.

"It looks like the banks are having their cake and eating it too," huffs RateCity money editor Sally Tindall. And she has a point — borrowers and savers are getting squeezed alike. To be fair on the poor old banks, they have been pushing rates up in response to regulatory measures that are (very) belatedly trying to curb the worst of the property market excesses.

In any case, there's no sign of sweet relief here for conservative savers, who just want a bit of reward for putting their money in the bank after years of seeing their hard-earned dollars hardly earning at all.

When you look at what's happened over the past year, though, the picture looks a bit better.

"Very, very tentatively, we are starting to see retail deposit rates lifting from the lows," Russell Investments senior investment strategist Graham Harman says.

Harman says the deposit rate uplift is "extremely patchy right now". But, he reckons, if you have $10,000 in an online savings account you're getting 1.65 per cent now versus 1.55 per cent a year ago. Harman points out that that's a 6 per cent pay rise. And in a three-year bank term deposit, you're getting 2.95 per cent now against 2.60 per cent this time last year – a 13 per cent pay rise. Break out the champagne!

It's a similar story in bond markets, where yields look to have bottomed.

That's good news, right?

"At least it's a whiff of oxygen in the bell jar," Harman says wryly.

It's "definitely an improvement", agrees First State Super head of investment strategy Michael Blayney. "For conservative investors, things are a little better." He pauses for a second, and then: "Or they are 'less worse', would be a good way to put it."

You can read all the rest at the AFR here.

Ride an Uber, drive a Tesla - just don't invest in them, Elizabeth Knight says:

Hamish Douglass strutted his tech bona fides on stage this week with an attention-grabbing performance that drew headlines following his claim that "Uber is one of the stupidest businesses in history".

His other prediction: "The probability of Tesla surviving in the long term [is] actually pretty low as well."

Such claims could be construed as coming from a technology disruption denier. Anything but.

Douglass, who co-founded global share fund Magellan, is a disruption disciple, having moved away from a devotion to a range of international consumer companies that he now sees as dinosaurs.

The message he is actually trying to convey is two-fold. First, that investors shouldn't be swayed by big or familiar tech brands such as Uber and Tesla. Rather, look under the hood at the business model because some just don't stack up.

All tech is not good tech. And just because they are big today doesn't mean they are safe investments.

The other plank in his investment thesis is to beware of companies that are currently churning out big profits but will become victims of technological disruption down the track.

Here's more

Copper-supply threats are back on investor radars as rising labour tensions at the world's second-largest mine helped push up prices that had been beaten down by demand concerns.

The metal is trading at $US5718 a tonne, near a three-week high it hit last night  after a union-affiliated group reported that about 2000 striking workers had been laid off at Freeport-McMoRan's Grasberg mine in Indonesia.

The Phoenix-based company later confirmed that "a large number" of the 4000 people who have failed to report to work are now "deemed to have resigned". 

The labour tensions at Grasberg throw a spotlight back on supply-side challenges, thereby easing concern about slowing demand. Some workers downed tools on May 1, just as the mine was preparing to ramp up and resume exports as part of a short-term deal with the government as talks for new contractual terms continue.

"Laying off workers doesn't make it seem like the mine's going to suddenly bounce back and start hitting production capacity," said Leon Westgate, an analyst at Levmet UK. "We seem to have had a bit of a delayed reaction to the Grasberg news, and a knee-jerk response in other metals."

Providing further support to prices, inventories tracked by the London Metal Exchange have fallen while US equities extended their rally to fresh records amid growing confidence in American consumers' ability to jump start economic growth.

Here's the glass half-full view of the economy, something to dispel the Friday gloom:

The recent market slump may suggest otherwise, but this "confession season" has actually been quite benign, in line with good business conditions, Citi says.

"Notwithstanding weaker sales and profit warnings predominantly from retailers, net earnings downgrades for the market overall have been minimal in recent months, consistent with reportedly healthy business conditions from the monthly NAB survey," Citi equity strategist Tony Brennan, noting that conditions are above average in most sectors.

"With the economy still in transition after the resources boom, it remains a complex picture, of some areas slowing as others pick up, but recent indicators, including stronger employment, don't seem inconsistent with continuing growth near trend."

The main concern weighing on sentiment of late is a downturn in housing, but equally, the unwinding of resource capital spending seems largely complete, and infrastructure spending looks to be picking up markedly, Brennan notes.

Turning to the main sectors, Brennan says that while the bank levy will hit bank earnings, which are already slowing, it's important to keep in mind that the reduction in overall markets due to the levy is likely to only be small at ~1.5 per cent in a full year.

Meanwhile, resource earnings forecasts now seem consistent with commodity prices, and these could rise again.

"Bank earnings growth may be slower, and resource earnings may have less upside from current estimates, but EPS growth close to trend in FY18 still seems possible, and the valuation of the market doesn't seem that high as to limit further advance," he says.

"The market PE multiple is a little high, but profitability (ROE) has come down, in the resource, bank and food retailing sectors, among the larger, and that leaves the price to book ratio around average, which has been a good indicator of normal returns."

Citi reckons that the ASX will still be able to deliver decent returns of around the long-term average of 10 per cent a year (including dividends) over the next years.

The Aussie dollar has just taken a bit of a midday hit, falling one-quarter of a cent to US74.23¢, its lowest in a week.

The currency has come under pressure following the slide in oil prices, a drop in iron ore as well as weak local data.

AxiTrader Greg McKenna reckons that the Aussie's woes go well beyond the slump in commodity prices and this week's price development may be the start of a deeper unwind in the currency.

In particular, soft economic data this week - a deeper than expected fall in construction work done - as well as more indications that consumers are reluctant to spend, are both likely to worry the RBA.

"The renewed focus on the local economy has just added weight to the notion that after more than a quarter-century of economic nirvana the Australian economy faces real headwinds," he said.

The increasing domestic headwinds are a concern for international investors and could prompt another selloff in the currency.

"I am increasingly getting a sense that the Aussie is at risk of a significant capitulation at some point in the next year," he said.

With the RBA remaining very reluctant to cut rates, McKenna said a slide in the currency is a "necessary requirement" and the Aussie could well fall below US70¢, and even to US65¢ over the next 12 months.

Spot iron ore prices are on course to post their third weekly fall in four, still pressured by plentiful supply in top consumer China and a retreat in Chinese steel prices.

Spot iron ore has largely tracked losses in Chinese steel futures which are down for a fourth consecutive session today, also headed for a third weekly fall in four.

Spot iron ore slipped 0.5 per cent to $US60.24 a tonne overnight and has fallen 3.9 per cent so far this week. Dalian iron ore futures are down another 1.6 per cent at 449.5 yuan, having dropped 5 per cent this week.

The spot benchmark has dropped from a high of $US94.86 a tonne in February as stockpiles of the steelmaking raw material at China's ports reached a 13-year high, underlining slow demand.

Speculative pressure in China's futures exchange has also dragged down iron ore prices, analysts at NAB said in a note.

"That speculative pressure - rather than underlying fundamentals - appears to be driving prices at the present time and increases the risk of price volatility in the short term," they said in a report.

Stockpiles of imported iron ore at China's ports reached 136 million tonnes last week, the most since 2004, according to SteelHome consultancy.

"Weaker prospects for Chinese steel producers from domestic and international markets should limit upside pressure to iron ore spot prices," said NAB analysts. The bank expects iron ore to average $US68 a tonne this year and $US60 in 2018.

BMI Research has cut its iron ore price estimates, to $US65 in 2017 from $US70 previously and to $US50 in 2018 from $US55.

BMI said it anticipates the "Chinese government's fiscal support to the infrastructure and construction sectors will cool off earlier in 2017 than we previously expected."

Telcos have come under pressure as the ACCC's decision on the regulation of high-speed internet services supplied by non-NBN fixed line networks increases the possibility of rising competition

The competition regulator has finalised a ruling that non-NBN high-speed internet providers will set the prices of their service in line with the NBN.

The Australian Competition and Consumer Commission has also ruled that non-NBN networks will be able to pass on the $7 a month cost of the federal government's proposed Regional Broadband Scheme charge, under which urban users will subside regional services.

The ACCC's decision sets wholesale prices and other terms and conditions that are expected to provide customers with a larger number of retailers to choose from.

Telstra shares have dropped as much as 1.6 per cent, TPG Telecom declined 1.3 per cent, while Vocus lost up to 3.9 per cent.

If Australia's beloved banks were implicitly government guaranteed before the global financial crisis (aka "too-big-to-fail"), they are far more so today, says the AFR's Chris Joye: 

You cannot minimise these guarantees given they cornerstone the entire financial system (nor pretend they don't exist).

All the prudent policymaker can do is mitigate them via recognising the subsidies, pricing them, and minimising the probability they are called upon through, among other things, ensuring our banks retain world-class equity buffers.

Before the GFC we never had an explicit government guarantee of deposits. We had never seen taxpayers insure the banks' wholesale bonds, as they did (and NAB's learnt chair Ken Henry says they will do again).

We did not have a permanent bank bail-out fund via the Reserve Bank's globally unique Committed Liquidity Facility, which is designed to furnish banks with $200 billion in emergency cash at a cost of just 1.9 per cent annually to eliminate threats to their solvency when funding markets sour.

And we did not have a tax on the major banks and Macquarie's too-big-to-fail subsidy care of the 0.06 per cent annual levy on their wholesale debts, which, by definition, makes the implicit guarantee more explicit, ironically only further reducing funding costs.

In 2015 the RBA's research showed that the major banks profit from a 20 basis point to 40 basis point annual funding subsidy vis-à-vis smaller peers because their credit ratings are lifted several notches above what they would otherwise deserve on the presumption we will bail them out.

It was, therefore, no surprise to hear Treasurer Scott Morrison cite this same 20 basis point to 40 basis point range twice on national television when outlining the rationale for his levy. 

The levy's cost need not be borne by shareholders, depositors, or borrowers. The banks can fully neutralise it by shrinking their notoriously flabby operating costs by 5 per cent through economies of scale, automation, and slimmer remuneration regimes.

Here's more at the AFR

Japan's core consumer inflation gauge rose rose 0.3 per cent in April from a year earlier to mark a fourth straight month of increases, offering policymakers some hope a steady economic recovery will help shift consumers' sticky deflationary mindsets.

But the increase was due largely to the fading effect of last year's energy price falls, underscoring the challenges the Bank of Japan still faces after years of heavy monetary stimulus to reach its ambitious 2 per cent target.

Japan's economy grew in the first quarter at its fastest pace in a year to mark the longest period of expansion in a decade, thanks to robust exports and a helpful boost from private consumption.

Nonetheless, weak household spending and poor corporate pricing power have kept inflation around zero for almost two years, forcing the BoJ to revamp its policy framework to one better suited for a long-term battle against deflation.

With the economy showing signs of life, many analysts now expect the BoJ's next move to be a reduction - rather than an expansion - of its monetary stimulus.

But BoJ officials have stressed that any reduction in stimulus would be some time away, pointing to the fact inflation remains distant from their target.

One of the only economists to forecast an RBA rate hike this year, TD Securities' Annette Beacher, has changed tack and shifted her rate rise call from November to May next year, mainly due to the surprisingly cautious consumer.

"We maintain that the RBA 'should' hike to attract much-needed offshore capital and address household imbalances," Beacher says in a note to clients.

But she acknowledges that despite the positive global backdrop, debt-saturated households are barely consuming while employment growth remains weak.

Since the GFC, private consumption growth has added around 1.5 percentage points to annual GDP growth, half the pace of the preceding decade, and a fraction of the pace usually seen during a robust dwelling construction cycle, she notes.

In the recent May board meeting minutes, the RBA also said "it would take some time to assess the full effects of recent increases in mortgage rates and the additional supervisory focus".

"This patience, along with recent weak activity data, has pushed back the timing of our first RBA hike from November 2017 into May 2018," she said.

One of the reasons for Beacher's rate hike call was worries about financial stability due to strong rises in house prices, and she doesn't believe that the heat is coming out of the market.

"We remain unconvinced that macroprudential tools targeting interest-only mortgage loans is the solution to rampant house price inflation and record owner-occupied debt accumulation.

Financial markets have for a while been ruling out any chance of a rate hike this, year with interest rate futures now pricing in a 20 per cent chance of a cut by the end of the year.

Embattled online retailer Surfstitch will suspend its shares until late August after being hit with a class action claim for as much as $100 million, which dwarfs its $19 million market value.

Litigation funder Vannin Capital and law firm Quinn Emanuel Urquhart & Sullivan have accused SurfStitch of engaging in misleading and deceptive conduct and breaching its continuous disclosure obligations by overstating earnings and profit forecasts.

SurfStitch shares went into a trading halt on Wednesday, while the board, led by veteran retailers Sam Weiss and Mike Sonand, assessed the claim. But this morning the company requested a voluntary suspension of its shares that is likely to last until it presents its full year results in late August. 

The company said it will explore a way to settle the claim "at a level that would permit the company's continued financial viability".

Surfsitch, which said on Monday that it will slash costs and shuts its loss-making US operations after revealing its losses would double in full year to between $10.5 million and $11.5 million before interest, tax, depreciation and amortisation, now plans to speed up its "planned restructure and rationalisation process". 

Surfstitch shares, which once traded as high as $2.15 in November 2015, closed on Tuesday at a record low of 6.8¢.

Retailers are bouncing back a bit from yesterday's selloff, but it's not enough to boost the market as just about all other sectors are in the red.

The ASX is down 0.6 per cent at 5753.5, with resource stocks leading the way down as both miners and energy companies tumble.

"Australian investors have found it difficult to locate their animal spirits in recent days," says CMC chief market analyst Ric Spooner.

"In stark contrast to the Australian market, the S&P 500 (which hit a record overnight) was supported by buying in consumer discretionary stocks after a healthy sales report from technology retailer, Best Buy Co. This provides more encouraging evidence that US consumer spending is restoring trend growth after a first quarter slump."

Local retail stocks, which were hit hard yesterday following news that Topshop went belly-up as well as more dour broker comments on the sector, are getting some respite today, possibly helped by the sector's rally on Wall Street.

JB Hi-Fi is up 2.6 per cent, Harvey Norman has gained 1.9 per cent and Super Retail Group has added 1 per cent - but the unloved Myer is down another 2 per cent at 85.5 cents.

But losers are well outpacing winners among the top 200, with 139 stocks in the red,

BHP is the biggest headwind for the benchmark index, falling 2.3 per cent as it takes a hit from the sharp drop in oil prices overnight. That's also weighing on Woodside, which has lost 2.5 per cent, and Oil Search, down 2.7 per cent.

The energy index has dropped 2.4 per cent, while materials are off 1.6 per cent and financials have slipped 0.4 per cent, with three of the big four down 0.2 per cent and ANZ dropping 1 per cent.

A year ago it was low prices as almond output rebounded in California following a prolonged drought there that pushed shares in Select Harvests, the local almond group, to long term lows at $3.73.

Today, confirmation of a poor 2017 crop and flat prices have pushed shares in the company down a heavy 14 per cent to $4.15 in opening trading.

At least the company didn't try to gild the lily, admitting upfront the crop downgrade "will have a material impact on full year earnings".

Sure, it tried to dampen the concern by pointing to its growth prospects over the next few years, but that won't help near term cash as it navigates its way through the year ahead.

The current speculative free-for-all is set to keep traders on guard, says IG chief strategist John Kicklighter:

Global markets are proving a mixture of extremes. On the one hand, we have global equities cautiously rising and the favourite 'fear gauge' VIX dropping back to extremely quiet territory. On the other hand, crude oil and Bitcoin have put in for dramatic declines.

These moves seem to defy traditional fundamental motivation, leaving a sense of speculative free-for-all that should keep traders on guard heading into the week's final session and the G7 Summit on deck.

Despite the strong swell in US shares overnight, the SPI futures suggest we are on pace for a fairly flat start to Friday's session. Traders are looking for a strong-enough push to clear this week's approximate 60-point range. The 5800 area is progressive resistance for promoting a bear trend. However, as long 5750 and the triple-bottom 5676 going back to early February hold, the bulls will not relent.

The Australian dollar suffered its biggest one-day drop in three weeks overnight, falling 0.6 per cent to US74.57¢ and saddling bulls with serious doubt over the measured climb higher they've had to fight for. Stripping out the influence of the greenback, we find that the Aussie was the past session's worst performer against the 'majors'. With little on the local docket and the speculative outlook mixed, expect tension from the foreign exchange market through the end of the week.

Here's more

Australia is "denying gravity" by continuing to encourage coal investments because renewable energy is now competing "head to head" with coal on 
cost, the global head of BlackRock's infrastructure investment group, Jim Barry, says.

"It's been amusing sitting back and watching Australia from afar because in effect it's been denying gravity," Barry, who is based in Dublin, told the AFR.

"Coal is dead. That's not to say all the coal plants are going to shut tomorrow. But anyone who's looking to take beyond a 10-year view on coal is gambling very significantly."

Barry, who plans to start investing in Australian renewable energy projects, acknowledged it was hard for politicians "not to do something" with resources like coal when they were available, but said he did not think there was "long-term potential" in Indian conglomerate Adani's proposed $16.5 billion Carmichael coal mine. 

He said no board directors in the US would make a 30-year commitment to coal. 

The previous mentality around renewable energy, that it was expensive and "all about subsidies", had now been "turned on its head" as prices, particularly in solar energy, had fallen, Barry said. "The thing that has changed fundamentally the whole picture is that renewables have gotten so cheap."

Here are the overnight market highlights:

• SPI futures down 3 points to 5792
• AUD -0.6% to 74.57 US cents (Overnight range: 74.51 to 75.16)
• On Wall St, Dow +0.3%, S&P 500 +0.4%, Nasdaq +0.7%
• In New York, BHP -0.8%, Rio -0.7% 
• In Europe, Stoxx 50 -0.1%, FTSE flat, CAC -0.1%, DAX -0.2%
• Spot gold -0.2% to $US1255.78 an ounce
• Brent crude -5.1% to $US51.22 a barrel
• US oil -5.2% to $US48.47 a barrel
• Iron ore -0.5% to $US60.24 a tonne
• Dalian iron ore -1.3% to 451 yuan
• Steam coal +0.0% to $US74.45, Met coal -0.1% to $US174.15
• LME aluminium +0.8% to $US1960
• LME copper +0.7% to $US5723 a tonne
• 10-year bond yield: US 2.25%, Germany 0.36%, Australia 2.44%

And a few changes in analyst recommendations:

• Ansell (ANN): Cut to sell at UBS, price target $24
• Australian Pharma (API): Cut to underperform at Credit
  Suisse
• Automotive Holdings (AHG): Cut to neutral at UBS, PT $3.05
• Premier Investments (PMV): Raised to buy at Morningstar
• Ridley (RIC): Cut to hold at Bell Potter, PT $1.54

In company news, Fairfax Media and NZME will ask New Zealand's High Court to overturn a decision by the country's competition watchdog to block a merger of their local assets.

The media rivals said in a joint statement they will file an appeal against the New Zealand Commerce Commission's decision to not let the merger proceed.

Fairfax and NZME strongly disagree with the NZCC's contention that a merger between New Zealand's two largest newspaper networks would likely lessen competition for advertising and readers.

"After a careful review and analysis of NZCC's reasons, the companies believe the NZCC was wrong in fact and wrong in law to decline clearance or authorisation for the merger," the companies said in a statement to the ASX.

The appeal states the NZCC was mistaken to conclude there are separate markets for online news, Sunday newspapers and community newspapers given the overlap in readership and advertising.

It also said the NZCC did not take into account or give sufficient weight to other local or international providers of online news in NZ, including the likes of Allied Press-owned Otago Daily Times, Bauer Media and Australian Associated Press.

Other objections included failure to give enough consideration to the giant slice of advertising revenue taken by the likes of Google and Facebook.

Aussie retailers may be struggling but it was a rally in their US peers that helped push Wall Street indices to new record highs overnight.

Both the S&P 500 and the Nasdaq hit record closing highs, with the market propped up by gains in the consumer discretionary sector after strong reports from Best Buy and other retailers.

Best Buy jumped 21.5 per cent, hitting a record high and making it the top gainer on the S&P, after its comparable sales unexpectedly rose last quarter.

Tommy Hilfiger owner PVH was the second-biggest S&P gainer, with a 4.8-per cent jump to a near 6-month high on strong results. Sears was up 13.5 per cent after posting its first quarterly profit in nearly two years.

The reports follow mixed results this reporting period from other retailers, some of which continue to be hurt by competition from Amazon.com.

But they helped to give major indexes a sixth straight day of gains, more than making up for last week's selloff.

In addition, the CBOE Volatility Index, the most widely followed barometer of expected near-term stock market volatility, fell to a two-week low of 9.72 during the session.

"There's no clear and present danger on the horizon," said Jimmy Chang, chief investment strategist at Rockefeller & Co. "The lack of fear, the complacency is supporting the market."

The Dow Jones Industrial Average rose 70.53 points, or 0.34 per cent, to 21,082.95, the S&P 500 gained 10.68 points, or 0.44 per cent, to 2415.07 and the Nasdaq Composite added 42.23 points, or 0.69 per cent, to 6205.26.

Given relatively high valuations, further upside may be difficult for the market without progress on tax reform in Washington, Chang said.

He and other analysts also said the S&P 500's ability to remain above 2400, after closing above it on Wednesday, also provided technical support.

Minutes from the Federal Reserve's May 2-3 meeting, released on Wednesday, continued to bolster sentiment. They showed policymakers view an interest rate hike coming soon, but that they agreed to hold off until it was clear a recent slowdown in the economy was temporary.

Fed officials also proposed a plan to wind down its $US4.5 trillion of debt securities, including a limit on how much would be allowed to come off the balance sheet each month.

Limiting gains, the S&P energy index was down 1.8 per cent​ following a nearly 5 per cent drop in crude oil prices. OPEC agreed to extend output cuts, but not by as much as investors had hoped.